When does prorating apply in insurance contracts?

Prorating applies in insurance contracts when there are multiple policies covering the same risk. In such scenarios, when a loss occurs, and more than one policy is in force for the same insured property, each policy contributes to the payout proportionately based on its coverage limits. This method ensures that no one policy pays out beyond its share of the total coverage.

For example, if two insurance policies cover a property with different limits, and a loss occurs, the insurer will calculate the payout by determining how much each policy should contribute. This prevents the insured from receiving more than the actual loss or benefiting from multiple payouts for the same loss beyond their total coverage. Thus, prorating helps maintain fairness and balance among the involved insurers.

The other options do not relate to the concept of prorating directly. They address different aspects of insurance claims and coverage management, such as adjusting premiums or claim limits, which does not fit the context of prorating in the case of multiple policies.